Retail and casual dining were struggling before the Coronavirus pandemic started, but with many high profile insolvencies hitting the headlines over the last few months, it doesn’t look like the position is going to improve in the short to medium term. With many of the businesses in these sectors operating from leasehold premises, what effect will these closures have on landlords?
The number of failures is increasing
Based on information from the Centre for Retail Research, to 10 June 2020, there have been 29 retail failures this year, covering nearly 1,500 stores and over 39,000 employees. Compare this with 43 retail failures in both 2018 and 2019 and it would seem that, if the trend continues, the number of casualties in 2020 may exceed the previous years. With the social distancing measures likely to affect footfall still further, it does not seem unrealistic to expect that the failures will increase.
Ensuring continuity of business
The Government were quick to act when the lockdown measures were introduced, preventing commercial landlords from forfeiting the lease for arrears of rent until at least 30 June 2020, citing that the steps were necessary to support business owners, especially on the high street. Initially, this led to an increase in landlords issuing statutory demands as they sought to use alternatives to enforce their rental payments. However, this subsequently led to a restriction in statutory demands being presented where the pandemic has caused financial hardship to the recipient of the demand (under the Corporate Governance and Insolvency Bill (“the CGIB”) which is currently going through Parliament).
June quarter payments now look unlikely
The most recent update from the Government will not make happy reading for landlords. Not only has the suspension of forfeiture been extended from 30 June to 30 September 2020, the Government have now announced their intention to lay secondary legislation preventing landlords from using Commercial Rent Arrears Recovery until 30 September unless there are over 189 days’ rent outstanding, and the CGIB is also set to extend the moratorium on statutory demands and winding up petitions to the same date too.
The impact on landlords
Landlords of commercial properties are now left facing a predicament – they are unable to take action with tenants who are not paying and therefore any enforcement will be difficult. The Government has announced a Code of Practice which encourages businesses to keep paying their landlords what they can, but the reality is that the code is voluntary and, without any immediate threat of action now available, most tenants will probably look to pay the minimum possible whilst their businesses look to reopen, leaving landlords with their own bills to pay but minimal income in the short term.
What does mean for landlords?
Unfortunately, like any other business or sector, landlords rely on rental income to keep the wheels turning. For those with tenants in the retail sector, there were already difficulties before we entered the pandemic, with the likes of Intu (owners of the Trafford Centre, the Metro Centre, as well as other shopping centres) looking at a £2bn deficit at the start of 2020, and now on the verge of appointing Administrators. Landlords are not immune from the effects of insolvency.
Just like any other business, landlords can seek to obtain the support from the UK Government, such as applying for the various loans and taking advantage of the various schemes, however, the fact remains that they will be reliant on having a good relationship with their tenants and hoping that they can agree some reduced payments for the time being. Landlords should also note that they should seek legal advice if looking to agree reduced terms.
If you are a landlord and would like to speak with one of our business advisers for advice, please call Mike Kienlen on 07770 536214 or email using the link below.
